East Timor President Xanana Gusmao on Monday urged warring factions to end the violence surging through the country's capital, while ex-soldiers whose rebellion triggered the mayhem offered peace talks.

Gusmao, the most respected figure in East Timor, addressed a crowd of demonstrators outside government offices in Dili where Prime Minister Mari Alkatiri and his Cabinet held emergency meetings to find a way to end the crisis.

Witnesses reported mobs setting more houses ablaze Monday, though the situation eased since the weekend, when gangs armed with machetes, clubs and spears rampaged through the city in violence that has threatened to tear the young country apart. At least 27 people have been killed in the past week.

Maj. Agosto De Araujo, a leader of the disgruntled soldiers, said a rebel envoy on Sunday had delivered a pledge to Gusmao that they were willing to join peace talks.

"We are ready to be called back to the negotiating table at any time," De Araujo told The Associated Press by telephone.

The unrest was triggered by the March firing of 600 disgruntled soldiers from the 1,400-member army. After staging deadly riots last month, the sacked troops fled the seaside capital, setting up positions in the surrounding hills and threatening guerrilla war if they were not reinstated.

The dispute has since spread to the general population, with rival gangs battling each other and attacking neighborhoods despite patrolling by Australian peacekeepers. Initially tentative Australian troops seemed to be getting tougher Monday, rounding up gangs of youths and arresting ringleaders.

Australian Defense Minister Brenden Nelson said the troops needed stronger powers if they were expected to break up a repeat of the violence that has flared in recent days.

Meanwhile, Gusmao, who holds a largely ceremonial role in the country, emerged from the Cabinet meetings to address a crowd of anti-Alkatiri protesters, telling them to go home and urging an end to the violence.

"The situation is better now," Gusmao said. "We will continue to discuss it."

Alkatiri has become a figure of blame for the crisis. He has said the violence, which has split the country's tiny military forces and exposed factionalism and disarray within the government, is a plot to overthrow him.

The relative calm Monday follows days of gunfire, arson, and fights between assailants armed with machetes and clubs in the capital. Tens of thousands of residents have fled the city, and the United Nations and diplomatic missions have evacuated nonessential personnel.

The U.N. special representative in Dili said more peacekeepers may be needed. Australia has some 1,300 soldiers and police in East Timor, the vast bulk of the international force.

East Timor voted for independence in a U.N.-sponsored referendum in 1999 to end 24 often brutal years of Indonesian rule, triggering mayhem by militias linked to the Indonesian army. After an interim of United Nations administration, East Timor declared itself independent in 2002.